Security for performance
(Правовое руководство по составлению строительных контрактов)
Each party to a works contract may seek security against failure of performance by the other. A security in favour of the purchaser may be in the form of a guarantee, while that in favour of the contractor may be in the form of a guarantee or an irrevocable letter of credit in his favour (paragraph 1). Security interests in property are not a significant form of security for performance under works contracts (paragraph 2).
It is advisable for the works contract to set forth the forms of security to be furnished by each party, and the consequences of a failure to do so (paragraph 4). The law applicable to the security may contain mandatory provisions regulating certain aspects of the security (e.g., form and period of validity) (paragraph 6).
A guarantee for performance by the contractor may provide that, if specified failures to perform by the contractor occur, a third person is to be responsible for those failures in the manner described in the guarantee (paragraph 7). Guarantees of this type are used for the following purposes: that a contractor who has submitted a tender will not withdraw his tender before the date specified in the tender for awarding the contract (tender guarantees: paragraph 9); as security for proper performance under the contract (performance guarantees: paragraphs 9 to 12) and as security that an advance payment made by the purchaser to the contractor will be repaid to the purchaser (repayment guarantees: paragraphs 9 and 13). Performance guarantees may take the form of a monetary performance guarantee or a performance bond (paragraph 11).
The purchaser may wish to consider identifying in the invitation to tender the guarantors whom he is willing to accept. He may also wish to consider whether to specify that the guarantors must be institutions from his own country. There are advantages and disadvantages to these courses of action (paragraphs 14 to 16).
The terms of a guarantee may make a claim under the guarantee independent or accessory (paragraphs 17 to 19). Independent guarantees and accessory guarantees have their respective advantages and disadvantages (paragraphs 20 to 23). The parties may wish to provide that where a monetary performance guarantee is to be furnished, it is to be neither completely accessory nor a pure first demand guarantee (paragraph 24).
The guarantee may be furnished at the time the contract is entered into, or within a specified period of time after it is entered into (paragraph 25). The extent of liability under a guarantee is normally limited to a stated amount (paragraphs 26 to 28). The parties may wish to consider the effect of a variation of the scope of obligations under the works contract, or a termination of the contract, on the obligations of the guarantor, and to deal with this issue in a suitable manner (paragraphs 30 to 34). They may also wish to consider the possible duration of the guarantee, and difficulties which may arise if the guarantee has a fixed expiry date (paragraphs 35 to 39).
As security for the payment of the price, the purchaser may be required to arrange for a guarantee (paragraph 40). Alternatively, the purchaser may be required to arrange for a letter of credit to be opened by a bank in favour of the contractor, the bank undertaking to effect payment up to a stated amount within a prescribed time limit against the presentation by the contractor of stipulated documents (paragraph 41). The contractor may wish to determine in the contract the bank which is to open the letter of credit (paragraph 42). It is important that the payment terms under the letter of credit and the payment conditions under the works contract be harmonized (paragraph 43). It is advisable for the parties to agree on the documents against the presentation of which the bank is to make payment (paragraph 44). It is also advisable for the parties to consider the period for which the letter of credit is to remain open (paragraph 45).